Most financial guidelines recommend spending no more than 28% of your gross monthly income on housing costs. That includes your mortgage payment, property taxes, homeowners insurance, and any HOA fees. If you prefer to budget based on what actually hits your bank account, the equivalent guideline is roughly 25% of your net (take-home) income. These aren’t hard rules, but they give you a reliable starting point for deciding how much house you can comfortably afford.
The 28/36 Rule
The most widely cited guideline in mortgage lending is the 28/36 rule. It has two parts. First, your total housing costs should stay at or below 28% of your gross monthly income. Second, your total debt payments, housing included, should not exceed 36% of gross monthly income.
Gross income means your pay before taxes and deductions come out. So if your household earns $80,000 a year, your gross monthly income is about $6,667. Under the 28% guideline, your housing costs should cap around $1,867 per month. Under the 36% guideline, all of your debt payments combined (mortgage, car loans, student loans, credit cards, personal loans) should stay below roughly $2,400.
Lenders use this framework when deciding whether to approve you for a mortgage, though many will approve borrowers well above these thresholds. The 28/36 rule is better understood as a comfort zone than a ceiling. Staying within it generally leaves enough room in your budget for savings, emergencies, and the rest of your financial life.
Gross Income vs. Take-Home Pay
One common criticism of the 28% rule is that gross income doesn’t reflect what you actually have to spend. If you’re contributing heavily to a 401(k), paying for employer health insurance, or dealing with wage garnishments, your take-home pay could be significantly less than your gross. In that case, 28% of gross might actually represent 35% or more of what lands in your checking account.
A more conservative approach is to use 25% of your net income as your housing budget. Net income is your paycheck after taxes and pre-tax deductions. This method gives you a more realistic picture of what you can afford on a day-to-day basis. For someone earning $80,000 gross who takes home around $5,000 per month after taxes and deductions, 25% of net would put the housing budget at $1,250, noticeably lower than the $1,867 figure from the gross-income calculation.
Neither method is “correct.” The gross-income version is what lenders use. The net-income version is what your monthly budget actually feels like. If your gross and net incomes are relatively close (because you have few deductions), the two approaches will produce similar numbers. If there’s a big gap, the net-income method is more protective.
What Lenders Will Actually Approve
Just because a guideline says 28% doesn’t mean lenders will hold you to it. Many conventional mortgage lenders approve borrowers with debt-to-income ratios well above 36%. FHA loans allow a front-end ratio (housing costs alone) of up to 31%, and a back-end ratio (all debts) of up to 43%. Borrowers with strong credit, extra savings, or additional income sources can sometimes qualify for FHA loans with a back-end ratio as high as 50%.
Being approved for a larger mortgage doesn’t mean you should take it. Lender approval is based on whether you can make the payments, not on whether you’ll be comfortable doing so. A household stretching to 45% of gross income on total debt has very little margin for unexpected expenses, job changes, or rate increases on adjustable loans.
What Counts as “Housing Costs”
When calculating your housing percentage, include everything that’s part of keeping the roof over your head, not just the mortgage principal and interest. The full list includes principal, interest, property taxes, homeowners insurance, and HOA or condo fees. If you’re putting less than 20% down, you’ll likely have private mortgage insurance (PMI) as well.
Beyond those monthly line items, homeownership carries costs that don’t show up in your mortgage statement. Maintenance and repairs are the big one. A standard estimate, used by Fannie Mae, is to budget 2% of your home’s value per year for upkeep. On a $350,000 home, that’s $7,000 a year, or about $583 per month. Add in utilities, lawn care, and occasional larger expenses like a new roof or HVAC system, and the true cost of owning a home can run well past what your mortgage payment alone suggests.
When you’re deciding what percentage of income to spend on housing, factor in at least the maintenance estimate. If your mortgage, taxes, and insurance already consume 28% of your gross income, the maintenance budget could push your real housing cost to 33% or higher.
How Housing Fits Into a Full Budget
The 50/30/20 budgeting framework offers another way to think about the question. Under this model, 50% of your after-tax income goes to needs (housing, utilities, groceries, transportation, insurance, minimum debt payments), 30% goes to wants (dining out, entertainment, subscriptions), and 20% goes to savings and extra debt repayment.
Housing is the single largest item in the “needs” category, but it has to share that 50% with everything else you need to function: food, car payments, utilities, health insurance. If your mortgage alone eats 35% of your take-home pay, you’ve used up most of the needs bucket before buying groceries or putting gas in the car. That’s why the 25% of net income guideline works well alongside the 50/30/20 framework. It leaves roughly 25% of your after-tax income for all other essential expenses.
When You Might Spend More or Less
The 28% guideline assumes a fairly typical financial profile: moderate debt, some savings goals, and average costs for everything else. Your situation might justify a different number.
- You carry no other debt. If you have no car payment, no student loans, and no credit card balances, you have more room to allocate toward housing. A household with zero non-housing debt could spend 30% to 33% of gross income on housing and still stay well under the 36% total-debt threshold.
- You have a high income with low expenses. Someone earning $200,000 a year spends less of their income on basics like food and transportation. Spending 30% on housing still leaves a large dollar amount for everything else.
- You have an irregular or uncertain income. Freelancers, commission-based workers, and seasonal employees benefit from keeping housing costs well below 28%. A target of 20% or less provides a buffer during slow months.
- You’re in a high-cost area. In expensive housing markets, many households spend 35% to 40% of income on housing out of necessity. This is financially stressful but sometimes unavoidable. If you’re in this situation, look for savings in other budget categories to compensate.
- You’re aggressively saving for retirement or paying down debt. If early retirement, financial independence, or rapid debt payoff is a priority, keeping housing at 20% or below frees up a larger share of income for those goals.
A Quick Way to Run Your Numbers
To figure out your personal housing budget, start with your monthly gross income. Multiply by 0.28. That’s your maximum comfortable housing payment under the traditional guideline. Then add up all your monthly debt obligations (car, student loans, credit cards, personal loans) and add your prospective housing cost. If the total exceeds 36% of gross income, you’re stretching beyond the recommended range.
For a gut check, do the same math with your take-home pay. Multiply your monthly net income by 0.25. If the result is significantly lower than the 28%-of-gross number, your deductions are eating into your real spending power, and the lower figure is probably a more honest target. Whichever method you use, remember to include property taxes, insurance, and a maintenance reserve in your housing cost estimate, not just the loan payment itself.